New Breaks for Struggling Taxpayers

The Internal Revenue Service today announced new additions to its Fresh Start program for struggling taxpayers. The new features include penalty relief for the unemployed and expanded installment-payment options. The agency began the Fresh Start program in 2008.

The penalty relief for unemployed taxpayers is for “failure to pay” levies, which the IRS says are one of the biggest expenses that financially distressed taxpayers face on a tax bill.

The relief grants a six-month grace period to pay taxes to those who have been unemployed for at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 filing deadline. The same grace period applies to self-employed workers whose business income fell 25% or more in 2011.

Taxpayers who qualify for this break do not have to pay tax owed for 2011 until Oct. 15, 2012. Ordinarily, payments this year are due by April 17, with unpaid balances subject to a penalty.

The relief is subject to income limits, however. It’s not available to joint filers whose income exceeds $200,000 or single filers with income greater than $100,000. The 2011 balance due of income tax cannot exceed $50,000. To get the benefit taxpayers must file Form 1127A, available at www.irs.gov/form1127.

Installment agreements

The IRS is also allowing more taxpayers to qualify for a “streamlined” installment agreement in an effort to make it easier to catch up on back taxes.

Effective immediately, the threshold for such agreements has been doubled, to $50,000, with no financial statement required. Taxpayers who owe $50,000 or less may enter into an installment agreement to pay the IRS over a series of months or years; the maximum term is now six years, up from five. Penalties are reduced, although interest continues to accrue on any outstanding balance.

In order to qualify for the new agreement, however, a taxpayer must agree to monthly direct debit payments, and he or she will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement page on IRS.gov and following the instructions.

The IRS has more information for taxpayers who haven’t paid – or can’t pay – what they owe. A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts,” is available on the IRS website.